UniCredit Investors Back Orcel’s Commerzbank Acquisition – BNN Bloomberg

(Bloomberg) — Some of UniCredit SpA’s top investors are backing a full takeover of German rival Commerzbank AG, saying such a move would benefit shareholders.

According to two investors, who asked not to be identified because they were not authorized to speak, a complete takeover appears to make strategic sense because UniCredit already has a presence in Germany and could become the country’s largest lender through a deal.

Both praised Chief Executive Andrea Orcel for building Commerzbank’s stake in a way that carries very little downside risk. While Orcel often spoke to shareholders in general terms about possible acquisitions, investors said they hadn’t expected his move.

UniCredit shocked markets this week by revealing it had built a 9% stake in the German lender and was considering a full takeover as an option. The move, a week after Germany announced its intention to sell its remaining stake in the lender, caught Berlin by surprise and prompted Commerzbank to hire advisers to explore options, including a defense.

UniCredit investors said the way Orcel managed to quickly and quietly build the stake now gives it the ability to seek talks with all stakeholders, while remaining flexible if those discussions do not immediately lead to agreements. The only risk would be losing money if UniCredit decides to divest again.

The two banks complement each other, so the combination will bring savings, higher profits and a leading presence in the German market, two investors said. It also brings control of a large bank in Poland, where UniCredit wants to expand, they said.

One of them, with a stake of more than 2% in UniCredit, is confident that the merger will not affect UniCredit’s dividend policy, expecting the merger to be carried out using a mix of equity and excess cash. An investor would consider a 35% premium to the value of Commerzbank’s shares before the announcement to be fair in the event of a full takeover.

What Bloomberg Intelligence says:

A hypothetical takeover of Commerzbank by UniCredit could create a €78 billion behemoth and increase earnings per share by 10% while improving asset quality… We assume that savings of 15% could be achieved in the combined cost base of HVB (the German arm of UniCredit) and Commerzbank.

— Philip Richards, Senior Banking Analyst

To read the full research note, click here.

Orcel has as much as €10 billion at its disposal for potential acquisitions, benefiting from higher interest rates while cutting costs. Commerzbank now has a stock market value of around €18 billion, up from around €15 billion before UniCredit disclosed its stake.

While any potential value creation will depend on the terms of the transaction and regulatory requests, the investor estimates that the merger will generate savings of at least €2 billion and an internal rate of return — a key indicator used to assess the profitability of an investment — of over 20%.

A second investor highlighted the ability of Orcel, one of Europe’s most productive traders, to negotiate, arguing that time was on his side as UniCredit was in no hurry to reach an agreement.

Although there are still many obstacles to a deal, Orcel said in an interview on Thursday that UniCredit remains flexible about what happens next.

“We can go up, we can go down, and we can connect,” Orcel said. “We are very patient.”